A corporate matter

Is social responsibility creating value or checkboxes?

Is corporate social responsibility a casualty of the law of diminishing returns? Although corporations have made significant investments in being "responsible" the benefits haven't been quantifiable, the burden of more people and reporting has been considerable, and the value of doing more isn't clear. Executives are asking whether social responsibility is creating more value or just more checkboxes.

Corporations recognised that there was a business case to support environmental sustainability about 10 years ago: reducing environmental impact saved money and could deliver value through increased competitive differentiation, customer loyalty, and positive impressions among politicians and regulators. Although the business case for social programmes was less clear, there was a strong sense that putting more resources into social investments would translate into more engaged employees and an improved reputation among external stakeholders.

While early indications of the value of corporate social responsibility seemed positive, the situation today isn't as conclusive. Corporations accept that the value of philanthropy is marginal and that social change is best achieved through direct and indirect employment, but the evidence of business operations contributing to qualitative social change is scarce.

Paradoxically, although corporate social responsibility has hit the wall, the need for meaningful social change is greater than ever. "2014 will be the year that corporate sustainability becomes seen as too important to be left to corporates themselves", wrote Oliver Balch recently. I agree.

There's a need for a diverse, global perspective on how corporations should solve the problem of CSR being both a benefit and a burden. It's unlikely there will be definitive answers, but getting the views of different sectors could make a significant contribution to redefining the role of corporations as agents of social change.

A fundamental rethink of the social purpose of business is needed. "An enlightened corporation is one that takes a bolder view of business, where profits are not their only goal but just one among several, which includes engaging in CSR activities to address the needs of society without raising the question of what might be in it for them," said Peter Madsen of Carnegie-Mellon University. "An ideological shift from shareholder to stakeholder primacy – and managing the firm accordingly – is another way to envision this change of attitude about CSR and make the transition from a traditional to an enlightened firm."

According to Kanji Tanimoto of the school of commerce, Waseda University, knowing more about the mutual relationship between business and society increases understanding of sustainable development and enhances social changes. "I think most business researchers and business practitioners tend to focus on only management behaviours and strategies, but we should consider the maturity of 'market society' together, for instance, ideas, consciousness, and behaviours of consumers and civil society organisations."

The inability of corporations to adopt a more enlightened view of their social purpose contributes to the narrow approach corporations take to understanding their impact on society. "What is missing are more long-term, society-based studies," said Jay Handelman of Queen's School of Business. "Studies that measure the long-term survival of firms that consistently invest in social responsibility initiatives may better measure the true value of such initiatives." Madsen agreed. "Very little attention has been paid to the impact that CSR practices have had directly on society or other corporate stakeholders," said Madsen.

Businesses tend to overlook their social impact for a variety of other reasons including what Handelman sees as a "short-term, quarterly-results-driven focus", the lack of what Madsen calls a "generally accepted metric by which any impact of CSR might be accurately measured" and a tendency to focus on risks rather than benefits.

"The harms seem to be documented better (everything from pollution, to the creation of a materialistic society, to unfair/unsafe labour practices)," wrote Peggy Cunningham of Dalhousie University. "There are huge gaps in research around the benefits, and because much of the research examining corporate social responsibility that has been done only looks at very narrow areas of corporate activity, the findings are rarely comparable or generalisable."

For corporations interested in deepening their social purpose and increasing their value in the broadest sense, three specific ideas emerge. Ensure someone in the top layers of management is attuned to societal trends and is able to translate those intangible, qualitative societal issues for senior managers, as needed to ensure that these societal issues become part of the strategic decision making of the firm.

Move away from a "return on investment" attitude toward CSR activities, to one that sees CSR as a way of furthering the interests of others not just as another business strategy along side others designed to increase revenues. And align CSR activities with the strategy of the firm versus more dispersed, tactical objectives and initiatives.

The view of these academics reveals that the reasons why corporations engage in social responsibility and the ways that they measure their ROI in this area have become anachronistic and inconsistent with the imperative to make a meaningful contribution to positive social change.